Cooper-Standard Holdings Inc. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2019. The request metadata says “2018 Q3,” but the supplied filing is for 2019 Q3.
Business context and results
Cooper-Standard manufactures sealing, fuel and brake delivery, and fluid transfer systems, primarily for automotive OEMs. It completed the sale of its anti-vibration systems (AVS) business to Continental AG on April 1, 2019.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Sales | $729.0m | $861.7m | $2,373.9m | $2,757.3m |
| Gross profit (margin) | $69.7m (9.6%) | $119.7m (13.9%) | $285.2m (12.0%) | $441.9m (16.0%) |
| Operating income (loss) | $(6.8)m | $41.7m | $202.7m | $183.3m |
| Net income (loss) attributable to Cooper-Standard | $(13.9)m | $32.2m | $128.0m | $130.8m |
| Diluted EPS | $(0.82) | $1.77 | $7.40 | $7.13 |
| Adjusted EBITDA | $43.5m | $69.6m | $168.0m | $300.1m |
Cash flow, debt and liquidity
- Nine-month operating cash flow was $29.9m, down from $78.0m. Capital expenditures were $131.1m; the resulting operating cash flow less capex was negative $101.2m.
- Investing activities provided $113.9m, including $243.4m of gross AVS sale proceeds. Financing activities used $78.3m. Cash, cash equivalents and restricted cash ended the period at $326.0m; balance-sheet cash and cash equivalents were $323.1m.
- Total debt was $803.5m, including $67.4m due within one year; long-term debt was $736.0m. The company had no ABL Facility borrowings and reported $193.1m of availability before $9.4m of outstanding letters of credit. It was in compliance with debt covenants.
- Management said available cash, operating cash flows, ABL borrowings and receivables factoring were expected to support requirements for the next 12 months, subject to operating performance and market conditions.
Material changes and management commentary
- Q3 sales fell 15.4% year over year; nine-month sales fell 13.9%. Management attributed the declines to lower vehicle volumes and mix, foreign exchange, and the net effect of acquisitions and the AVS divestiture.
- Gross margin contracted in both periods. Management cited vehicle volume and mix, delayed customer platform launches, the UAW work stoppage at General Motors, China commercial settlements, commodity inflation, tariffs, foreign exchange and wage inflation. Operational improvements and cost savings partly offset the pressures.
- Nine-month results included a $188.2m AVS sale gain. The Q3 results included a $1.7m reduction to that gain, primarily from working-capital adjustments. Restructuring charges were $29.2m for the nine months, and impairment charges were $4.1m, related to machinery and equipment in Asia Pacific.
- Segment adjusted EBITDA for nine months declined to $168.0m from $300.1m. Asia Pacific reported a $23.7m loss versus $23.5m of positive EBITDA a year earlier; North America and Europe also declined.
- Management forecast 2019 capital expenditures of approximately $165m–$175m. The filing provides no specific revenue or earnings guidance.
- On October 1, 2019, the company completed a bulk annuity purchase for its U.S. pension plan, reducing projected benefit obligations by $57.3m. It expected a non-cash settlement charge of approximately $15.0m in Q4.
Risks, contingencies and unusual items
- Management described uncertainty around automotive demand and production, especially in Europe and China, as well as trade tensions, Brexit, tariffs, raw-material volatility and foreign-exchange movements. It also identified customer concentration, labor disruptions, indebtedness, pension funding, program launches and execution of cost-saving plans as risks.
- The company disclosed an out-of-period correction for customer pricing matters in Asia Pacific, primarily relating to periods before 2019. The adjustment reduced nine-month sales by $8.5m, net income by $6.2m and diluted EPS by $0.36; management concluded the errors were immaterial to prior-year financial statements and expected current-year results.
- Environmental investigation and remediation reserves were approximately $4.7m. Management did not believe a material loss beyond amounts recognized was reasonably possible for disclosed litigation matters, while noting outcomes are inherently unpredictable.
- Disclosure controls were assessed as effective at a reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Key facts for investors to verify
- How much of nine-month earnings reflects the one-time AVS sale gain, and what the continuing business’s earnings and cash generation look like without it.
- Whether weaker automotive volumes, the GM work stoppage, China settlements and Asia Pacific operating losses persist or improve.
- Progress toward the $165m–$175m 2019 capex estimate and the company’s ability to generate operating cash flow sufficient to fund investment and debt service.
- Debt maturities, borrowing-base availability, covenant headroom and dependence on receivables factoring.
- The final impact of the pricing correction, AVS sale adjustments and anticipated pension settlement charge.